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Fair Value

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Note 5. Fair Value

The Fair Value Measurement Topic of the FASB Accounting Standards Codification (ASC 820) defines fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants under current market conditions at the measurement date. As required by ASC 820, the Company has performed an analysis of all investments measured at fair value to determine the significance and character of all inputs to their fair value determination. Inputs are the assumptions, along with considerations of risk, that a market participant would use to value an asset or a liability. In general, observable inputs are based on market data that is readily available, regularly distributed and verifiable that the Company obtains from independent, third-party sources. Unobservable inputs are developed by the Company based on its own assumptions of how market participants would value an asset or a liability.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.

Level 1 — Valuations based on quoted unadjusted prices for identical instruments in active markets traded on a national exchange to which the Company has access at the date of measurement.

Level 2 — Valuations based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.

Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Company’s own assumptions that market participants would use to price the asset or liability based on the best available information.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

The following tables present the fair value hierarchy of investments as of September 30, 2023 and December 31, 2022. Note that the valuation levels below are not necessarily an indication of the risk or liquidity associated with the underlying investment.

		Fair Value Hierarchy as of September 30, 2023
Investments:		Level 1				Level 2				Level 3				Total
First-lien senior secured debt investments		$	-			$	-			$	1,269,539			$	1,269,539
Equity investments			-				-				8,064				8,064
Short-term investments			16,628				-				-				16,628
Total Investments		$	16,628			$	-			$	1,277,603			$	1,294,231

		Fair Value Hierarchy as of December 31, 2022
Investments:		Level 1				Level 2				Level 3				Total
First-lien senior secured debt investments		$	-			$	-			$	1,157,971			$	1,157,971
Equity investments			-				-				7,148				7,148
Short-term investments			9,847				-				-				9,847
Total Investments		$	9,847			$	-			$	1,165,119			$	1,174,966

The following tables present changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three and nine months ended September 30, 2023 and 2022.

		First-lien
		senior secured				Private
		debt investments				equity investments				Total
For the three months ended September 30, 2023
Fair value, beginning of period		$	1,276,048			$	7,903			$	1,283,951
Purchases of investments, including PIK, if any			40,064				418				40,482
Proceeds from sales of investments and principal repayments			(41,776	)			-				(41,776	)
Net change in unrealized gain (loss)			(7,240	)			(257	)			(7,497	)
Net realized gain (loss)			-				-				-
Net accretion of discount on investments			2,443				-				2,443
Transfers into (out of) Level 3			-				-				-
Fair value, end of period		$	1,269,539			$	8,064			$	1,277,603

		First-lien
		senior secured				Private
		debt investments				equity investments				Total
For the three months ended September 30, 2022
Fair value, beginning of period		$	716,581			$	1,383			$	717,964
Purchases of investments, including PIK, if any			284,098				3,250				287,348
Proceeds from sales of investments and principal repayments			(45,917	)			-				(45,917	)
Net change in unrealized gain (loss)			2,822				495				3,317
Net realized gain (loss)			47				-				47
Net accretion of discount on investments			1,275				-				1,275
Transfers into (out of) Level 3			-				-				-
Fair value, end of period		$	958,906			$	5,128			$	964,034

		First-lien
		senior secured				Private
		debt investments				Equity investments				Total
For the nine months ended September 30, 2023
Fair value, beginning of period		$	1,157,971			$	7,148			$	1,165,119
Purchases of investments, including PIK, if any			218,541				605				219,146
Proceeds from sales of investments and principal repayments			(105,319	)			-				(105,319	)
Net change in unrealized gain (loss)			(8,414	)			311				(8,103	)
Net realized gain (loss)			-				-				-
Net accretion of discount on investments			6,760				-				6,760
Transfers into (out of) Level 3			-				-				-
Fair value, end of period		$	1,269,539			$	8,064			$	1,277,603

		First-lien
		senior secured				Private
		debt investments				Equity investments				Total
For the nine months ended September 30, 2022
Fair value, beginning of period		$	578,195			$	250			$	578,445
Purchases of investments, including PIK, if any			464,549				4,250				468,799
Proceeds from sales of investments and principal repayments			(89,694	)			-				(89,694	)
Net change in unrealized gain (loss)			2,499				628				3,127
Net realized gain (loss)			70				-				70
Net accretion of discount on investments			3,287				-				3,287
Transfers into (out of) Level 3			-				-				-
Fair value, end of period		$	958,906			$	5,128			$	964,034

For the three and nine months ended September 30, 2023 and 2022, the Company did not recognize any transfers to or from Level 3. The increase in unrealized gain (loss) relates to investments that were held during the period. The Company includes these unrealized gains and losses on the Statement of Operations – Net Change in Unrealized Gains (Losses).

Valuation Techniques and Unobservable Inputs

Non-traded debt investments are typically valued using either a market yield analysis or an enterprise value analysis. For debt investments that are not considered to be credit impaired, the Advisor uses a market yield analysis to determine fair value. If the debt investment is considered to be credit impaired (which is determined by performing an enterprise value analysis), the Advisor will use the enterprise value analysis or a liquidation basis analysis to determine fair value.

To determine fair value using a market yield analysis, the Advisor discounts the contractual cash flows of each investment at an appropriate discount rate (the market yield). To determine the estimated market yield for its debt investments, the Advisor analyzes changes in the risk/reward (measured by yields and leverage) of middle market indices as compared to changes in risk/reward for the underlying investment and estimates the appropriate discount rate for such debt investment. In this context, the discount rate and the fair market value of the investment is impacted by the structure and pricing of the security relative to current market yields for similar investments in similar businesses as well as the financial performance of such business. In performing this analysis, the Advisor considers data sources including, but not limited to: (i) industry publications, such as S&P Global’s High-End Middle Market Lending Review; Thomson Reuter’s Refinitiv Middle Market Monthly Stats; CapitalIQ; Pitchbook News; The Lead Left, and other data sources; (ii) comparable investments reviewed or completed by affiliates of the Advisor, and (iii) information obtained and provided by the Advisor’s independent valuation managers.

To determine if a debt investment is credit impaired, the Advisor estimates the enterprise value of the business and compares such estimate to the outstanding indebtedness of such business. The Advisor utilizes the following valuation methodologies to determine the estimated enterprise value of the company: (i) analysis of valuations of publicly traded companies in a similar line of business (“public company comparable analysis”), (ii) analysis of valuations of M&A transaction valuations for companies in a similar line of business (“precedent transaction analysis”), (iii) discounted cash flows (“DCF analysis”) and (iv) other valuation methodologies.

In determining the non-traded debt investment valuations, the following factors are considered, where relevant: the nature and realizable value of any collateral; the company’s ability to make interest payments, amortization payments (if any) and other fixed charges; call features, put features and other relevant terms of the debt security; the company’s historical and projected financial results; the markets in which the company does business; changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be valued; and other relevant factors.

Equity investments in private companies are typically valued using one of or a combination of the following valuation techniques: (i) public company comparable analysis, (ii) precedent transaction analysis and (iii) DCF analysis.

Under all of these valuation techniques, the Advisor estimates operating results of the companies in which it invests, including earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) and free cash flow. These estimates utilize unobservable inputs such as historical operating results, which may be unaudited, and projected operating results, which will be based on operating assumptions for such company. Investment performance data utilized will be the most recently available as of the measurement date which in many cases may reflect up to a one quarter lag in information. These estimates will be sensitive to changes in assumptions specific to such company as well as general assumptions for the industry. Other unobservable inputs utilized in the valuation techniques outlined above include: discounts for lack of marketability, selection of publicly traded companies, selection of similar precedent transactions, selected ranges for valuation multiples and expected required rates of return (discount rates).

Quantitative Table for Valuation Techniques

The following tables present quantitative information about the significant unobservable inputs of the Company’s Level 3 investments as of September 30, 2023 and December 31, 2022. The tables are not intended to be all-inclusive but instead capture the significant unobservable inputs relevant to the Advisor’s determination of fair value. The Company calculates weighted average, based on the value of the unobservable input of each investment relative to the fair value of the investment compared to the total fair value of all investments.

		As of September 30, 2023
						Valuation		Unobservable						Weighted
		Fair Value				Technique		Input		Range				Average
First-lien senior secured debt investments		$	1,269,539			Discounted cash flow analysis		Discount rate			9.3% - 15.0	%		11.1	%

Equity investments		$	1,652			Precedent Transaction Analysis		Original cost			1.0			1.0
			6,412			Comparable Multiples		EV / EBITDA			5.5 - 17.2			12.3
		$	1,277,603

		As of December 31, 2022
						Valuation		Unobservable					Weighted
		Fair Value				Technique		Input		Range			Average
First-lien senior secured debt investments		$	1,157,971			Discounted cash flow analysis		Discount rate			8.4% - 15.0	%		10.1	%

Equity investments		$	1,988			Precedent Transaction Analysis		Original Cost			1.0			1.0
			5,160			Comparable Multiples		EV/ EBITDA			6.6 - 17.2			12.7
		$	1,165,119

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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